Domestic stocks have lost a combined Rs 26 lakh crore or $306 billion in market value at dollar-rupee exchange rate of 86.58 since January 31. Adding January losses, the market cap erosion for Indian market amounted to Rs 45 lakh crore or roughly $520 billion. That is higher than the annual 2025 GDP forecasts for Malaysia, Norway, Philippines or Vietnam. The annual GDP estimates for neighbouring Bangladesh and Pakistan by IMF stand at $481 billion and $393 billion for 2025.
The sharp market erosion in India is seen at a time, when global funds are increasingly going underweight on India and increasing allocations to markets such as Japan and China, which are deemed attractive during to relatively cheap valuations. The monthly BofA Securities fund management survey suggested India is the second-least preferred stock market by global funds in February, with allocations collapsing to a two-year low on guarded optimism over Chinese shares.
India commanded a market capitalisation of Rs 443.47 lakh crore at the end of 2024, which has fallen to Rs 398.46 lakh crore now, down over Rs 45 lakh crore or 10 per cent. This loss in value in dollar terms at today’s prices stood roughly at $520 billion. In the context of 10 most-valued companies, the m-cap fell from Rs 9,497,760 crore to Rs 9,078,202, down 4.41 per cent. Selloff in midcap and smallcap stocks has been harsher.
A total of 19 per cent of funds were underweight in the BofA Securities survey; the least-favoured market was Thailand with 22 per cent underweight. A key reason for India’s losing clout is weakening of earnings growth. PhillipCapital noted that for FY25, FY26 and FY27, 35, 41 and 41 Nifty companies saw downgraded in the Q3 earnings season.
“In Nifty, 14/8/23 companies beat/in-line/missed earnings estimates. At the Ebitda level, beat/in-line/missed was 23/12/9; at revenue level, it was 10/23/12,” it said.
Another reason is the falling rupee due to firm dollar, which has triggered foreign outflows.
Nomura India attributed the recent correction to market fatigue after the strong run, when expectations were set high. Incrementally, economic and earnings growth were below the expectations, resulting in valuation multiple for Nifty moving lower to 19 times one-year forward earnings against 21.3 times at the peak in September 2024, it said.
Silver lining
ICICI Securities highlighted that in a bull market phase, Nifty midcap and small cap have a seen average correction of 27 per cent and 29 percent, respectively, in the past two decades.
“In current scenario, we believe both indices are approaching extremes of their bull market correction as Nifty midcap and small cap have already corrected 20 per cent and 24 per cent, respectively, indicating limited downside going ahead. Hence, focus should be on accumulating quality stocks in a staggered manner,” it said.
In the current corrective phase, where there is lot of pessimism in the market, the brokerage sees some silver linings.
1) Breadth Indicator: The market breadth has approached the bearish extreme as percentage of stocks (within Nifty 500 universe) above 50 and 200 days SMA has approached their bearish extreme of 13 and 5 respectively during last week. Historically, such bearish readings have paved the way for durable bottom in subsequent weeks.
2) Momentum indicator: Past two decades of data showed a weekly RSI below 30 suggests oversold condition for the Nifty midcap and small cap indices. This has been tested only on six occasions and resulted into 20 per cent up move in the subsequent three months, wherein drawdowns have been limited to 5 per cent.
“With recent reading of 33, we believe the risk reward remain favorable as pullback from bearish extremes cannot be ruled out,” ICICI Securities said.
3) The US Dollar index has been sustaining below 107 marks for the second consecutive week. Further weakness would be beneficial for emerging markets.
4) Further, the brokearge noted that the development on ease off in geopolitical worries would bring some stability in equity markets.
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